Do IPO Charters Maximize Firm Value? Antitakeover Protection in IPOs

This article focuses on the widely held views that antitakeovercharter and bylaw provisions (ATPs) increase agency costs, therebyreducing firm value, but that firms going public minimize agencycosts, thereby maximizing firm value. We show that these viewscannot comfortably coexist: ATPs are common in a sample of IPO-stagecharters and are no less common when the firm is backed by venturecapitalists or leveraged buyout funds. Moreover, ATP use isnot explained by two efficiency explanations of ATP use withtheoretical support—target firms' need for bargainingpower when a bid is made and the threat of managerial myopia.Rather, we find evidence that antitakeover protection is usedto protect management when takeovers are most likely and managementperformance most transparent. We find no evidence, however,that ATPs are explained by managers' desire to protect unusuallyhigh private benefits.